Franchising is a business model where one company, the franchisor, grants another company, the franchisee, the right to use its trademark, business procedures, and systems to produce and sell a product or service according to specific guidelines.  This agreement, known as a franchise, allows the franchisee to leverage the franchisor’s brand, intellectual property, and established business model. The primary advantage of franchising is access to a recognized brand name, managerial expertise, and well-established processes. 

Nepal has long been an attractive tourist destination, drawing foreign investment, particularly in the hospitality sector. The influx of foreign investors seeking new opportunities has led to significant growth in the hotel industry, especially after the pandemic.  With tourism being one of the key sectors attracting foreign investment in Nepal, the hotel and hospitality sector have witnessed growth in interest and financing. Thus, in Nepal when considering franchising a hotel, there are alternative approach such as:

i.    Brand License Agreement: It is a contract where a brand owner (licensor) grants permission to another party (licensee) to use its brand name, logo, or other intellectual property for a specific period and under certain conditions. Hence, the licensee pays a fee or the royalty for the right. 

ii.    Management Consultancy Agreement: It is a contract where company hires a management consultant or consulting firm to provide expert advice and guidance on improving the organization’s performance, efficiency, and overall management practices.  

Consequently, both the agreements offer different levels of involvement and control for the franchisee, so it’s essential to consider the preferences when choosing the correct approach for franchising a hotel in Nepal. 

In regards to the context of Nepal, there are two types of franchising models. Under the franchising model, the franchisor not only offers its trademark, products and services to the franchisee, but also provides a full system for operating the business.  
The franchisees before operating a hotel, should ensure that they have the necessary licenses of the intellectual property rights under the franchise agreement. Under such licenses, it is possible to provide under license terms that, where the franchisee becomes aware of an infringement of relevant intellectual property rights, the franchisee is entitled to bring infringement proceedings against the infringer.  

In Nepal, hotels have been classified in Stars ranging from One Star to Five Stars based on the facilities provided to the customers by the Department of Tourism. Hotel, Lodge, Restaurant, Bar and Tourist Guide Rules, 2038 provides that the Department of Tourism can classify a hotel as general tourist standard hotel or tourist resort, or one star to five star as per the facilities of that hotel. 

Hence, franchising is a marketing concept that can be implemented by hotels and hospitality sectors as a means of expanding their business. In the context of Nepal, Tourism Act, 1978 governs the establishment, licensing, operation and requirements for hotels, resorts and related tourism-based industries. Similarly, the Foreign Investment and Technology Act, 2019 and Patent, Design and Trademark Act, 1965 allows foreign brand for franchising in Nepal. Both the foreign and national brand can operate business in Nepal.   Therefore, when entering into a franchise agreement, they should ensure that the terms do not contravene any other laws and that they effectively address the requirement that the intellectual property assets covered by the franchise be appropriately protected and regulated through license and registrations. 

Disclaimer

We hereby inform all the readers that this article is for the information purposes only and should not be considered as a legal advice.  

For further information or legal consultation, please contact us at: info@apexlaw.com.np